VIEWPOINT

When GM First Messed Up

It was 1974, and America was racked by the worst recession since the Great Depression, a direct result of the Arab Oil Embargo of 1973. At 21, trying to find my way in the world with somewhere around $5 left in my checking account, I took a sales job at Sam White Oldsmobile in Houston. Even though car sales were beginning a collapse—from 14.6 million annually to 11.1 million two years later—things were still good in Houston. Sam White would end up No. 2 in the nation that year with 5,200 Oldsmobile sales, beaten for the top slot by Bill McDavid Oldsmobile on the other side of town.

Over the next 10 years I would have a front-row seat to the self-inflicted destruction of General Motors. It started in 1975, and the undoing of General Motors was the result of three problems.

First, GM creative designs were quickly heading south. Second, GM executives seemed not to care about major engineering mistakes that would ultimately cost them the loyalty of their large core audience. Finally, the arrogance of GM's executives was incredible. Anyone who gave them an honest appraisal of their products' shortcomings would have his head handed to him and his ears blistered.

Starfire and Swivel Seats

Sam White Oldsmobile was the perfect first spot for a young man in the auto industry. Most important, Bill Buxton, Oldsmobile's general manager, was in our store on a regular basis. However, he didn't care for any criticism that suggested GM's products might cause a defection in its customer base.

It started with the 1975 Olds Starfire. The interior space was cramped because the transmission required a large center hump. The car had originally been designed to use Mazda's Wankel rotary engine, but at the last minute GM realized that the engine could not be certified to meet 1975 emission standards. So GM quickly decided to use its old Odd-Fire V6, having repurchased the patent rights from Jeep.

In spite of its smaller size, the Starfire drove like a tank and gulped gasoline, and its engine was noisy and rough. Anybody who bought an Olds Starfire (or its cousins the Chevy Monza or Buick Skyhawk) would be a motivated buyer for Japan's next offerings.

1975 also marked the year that GM decided to remove the conventional bucket seats from the unbelievably popular Cutlass Supreme and replace them with the swivel buckets used in the Chevrolet Monte Carlo. Salespeople groaned: That design never allowed easy access to the backseat. Plus the seats squeaked, and they started wobbling soon after purchase. Customers hated the seats for the inconvenience; dealers hated them because of their known problems. The entire sales staff at Sam White Olds politely told Bill Buxton of our concerns.

Bad decision. Buxton launched into a tantrum that you might expect from a 5-year-old. Red-faced, he told the entire staff that they were the worst salesmen in all of General Motors if they didn't understand the brilliance of GM's decision. It was shocking to see a GM executive behave in that way.

But GM's callous disregard for its customers was just beginning.

Basic Stupid Choices

In early 1976 tire manufacturers experienced a national strike. Car companies were forced to build their products without including a spare tire—in a period when customers cared about that safety item. The promise was that once the strike was over, GM would send spare tires to the dealerships to be added to its cars.

Only…in fulfilling that promise GM simply sent tires—not specifically the same models or tread designs on the customers' vehicles—meaning that virtually everyone got a mismatched spare. It was a huge deal to GM customers back then; I'd never seen customers as angry about any issue as that deception.

In 1977, GM was caught swapping engines between car divisions. Today that's a normal part of the business, but salespeople had been trained to sell their customers on why a Chevrolet engine was not a Buick engine and so on. With this revelation, General Motors had managed to make liars out of half of its national sales force.

As always, GM execs could not understand why this was a problem at all, and their attitude was: "What are they going to do, buy a Ford?"

Then came GM's infamous diesel engine, followed by the 8-6-4 engine, both promising exceptional fuel efficiency. Both were disasters.

Next came the X-Cars, led by the Chevrolet Citation. Suddenly GM was offering a compact front-wheel-drive, V6-powered car that not only had serious braking system issues but actually delivered far less fuel efficiency than the older V8 models GM customers were trading in.

The arrogance of GM continued. How else can one explain taking the lowly Chevrolet Cavalier and turning it into a full-fledged Cadillac Cimarron? To be fair, GM President Pete Estes warned Cadillac's general manager, Ed Kennard, that there wasn't enough time to make the design changes to bring the little Chevy up to Cadillac standards—and Estes was ignored.

Promises Broken

In 1985, when GM introduced its new front-wheel-drive and full-size near-luxury cars, such as the Oldsmobile 98, the V6 engine suddenly developed a nasty habit of building up carbon at the fuel injector and refusing to run.

In those years the Chevrolet Suburban was offered with either panel doors in the back or a station wagon-like tailgate. But when you hit a pothole with the tailgate-style Suburbans, the back glass was likely to drop out of its track and shatter. It had been a problem for years; GM ignored it.

Of course, in this period the Pontiac Fiero made its debut, and in terms of sales it was possibly the hottest car Pontiac had retailed in 16 years. But it was hot elsewhere, too: It had a poor engineering design that always left the engine starved for oil and liable to catch fire. GM engineers knew that from their presale testing and brought it to market anyway.

Another serious issue started hitting GM: Its dealers' salespeople were defecting in droves to foreign manufacturers. It was not unheard-of in that period to earn a $1,000 commission selling a Mercedes (DAI) or BMW (BMWG), and many dealers paid a Honda (HMC) salesperson half that much for selling a Prelude or Accord. This was a far cry from what had become a $50 minimum commission at most GM dealerships, made worse by the fact that you had little opportunity to sell your customers a second vehicle.

The fact is that for 11 years every time GM promised new and exciting cars, or breakthrough technology in its engines, GM owners got burned, and they started leaving in droves.

The one area in which GM did not fail was its pickup truck lines; hence the GM truck loyalty that exists to this day. But the decisions GM made starting in the late 1960s, which became the GM "car" culture of 1975 to 1986, explain why GM no longer owns half of all auto sales in America.

It is true that from the early '90s on, GM quality was starting to improve, although its designs were bland at best. But it is fair to say that GM's renaissance should have occurred under Jack Smith's chairmanship, and he blew it.

Still Not Wagoner's Fault

Because I had a front-row seat to GM's implosion in 1975-86, the period in which it completely broke the trust of loyal customers, I became extremely impressed with the way Rick Wagoner ran the company. Wagoner did everything right in correcting long-standing mistakes the corporation had made.

He hired Bob Lutz, so GM design was vastly improved. Quality problems became a thing of the past. GM executives no longer walked around as if they were the gods of the automotive world, and sales input from dealers became a critical part of the GM process. In spite of what others have written, everything that had been wrong with General Motors for so long was slowly becoming a bad memory.

Still, Wagoner was not a miracle worker. And yes, he made his fair share of mistakes. The real issue was time, a luxury Wagoner never had. No one could undo overnight the damage that those who ran and worked for GM had wrought for decades.

Moreover, no one could have forecast last year's complete collapse of the auto industry, which has hit even Toyota (TM) with a $28 billion turnaround in profits in the first quarter of this year. At GM, it was as if Wagoner had been put into a basketball game in the middle of the fourth quarter and with his team down by 25 points. The clock ran out before he and the GM team could make a difference.

More than two decades ago I walked away from General Motors, infuriated with the arrogance of its executives, embarrassed by the quality of its products, and disgusted with GM's total disdain for anyone who suggested a way to improve things.

That is not General Motors today, but that's irrelevant. GM is still bankrupt—sunk by the sins of its past.

Ed Wallace is a recipient of the the Gerald R. Loeb Award for business journalism, given by the G. and R. Loeb Foundation, and is a member of the American Historical Society. His column leads the Fort Worth Star-Telegram's "Sunday Drive" section. He reviews new cars every Friday morning at 7:15 on Fox Four's Good Day, contributes articles to BusinessWeek Online, and hosts the top-rated talk show Wheels Saturdays from 8 a.m. to 1 p.m. on 570 KLIF.

Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, given by the Anderson School of Business at UCLA, and is a member of the American Historical Assn. He reviews new cars every Friday morning at 7:15 on Fox Four's Good Day, contributes articles to Businessweek.com, and hosts the top-rated daytime talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. E-mail: wheels570@sbcglobal.net, and read all of Ed's work at his news site, www.insideautomotive.com.